Mayors oppose ending construction sales tax

They warn cities, towns, RTA would be hurt by change

Mayors and government leaders in the Tucson region resolved Thursday to oppose the elimination of a construction sales tax.

A recommendation by the state Tax Simplification Task Force to eliminate the construction and contracting sales tax would hurt local cities and towns by cutting off an important revenue stream, said Pima Association of Governments official Jim DeGrood.

The proposal would change the taxation of construction projects from taxing the builders to taxing the sale of building materials.

DeGrood said the task force considered the impact of the change on state revenue but not on local revenue, much of which would be shifted to places that produce and sell building materials such as roof trusses, which would hurt local cities, towns and the Regional Transportation Authority.

Marana Mayor Ed Honea said the construction sales tax brought nearly $6 million to his town's coffers last year and the town spent about half paying down debt.

Without that money, "it would just really put us in a bind," Honea told the PAG Regional Council.

"I think this is an issue that could bankrupt or really severely hurt several of the members of this organization," he said.

South Tucson Mayor Jennifer Eckstrom said her city imposes a transactional privilege tax on restaurants that is like the construction tax that would also be harmed by the recommended changes. She said if the changes are enacted it would cut South Tucson's revenue from restaurants in half, a loss that would be impossible for the 1-square-mile city to replace.

The mayors' vote Thursday followed a discussion earlier this month by city and town managers to oppose the tax task force proposal.

Spencer Kamps, vice president of the Home Builders Association of Central Arizona, said the change could be made in a way that minimizes impact to cities and towns and still results in a more efficient tax system that captures more revenue.

Under the tax task force's proposal, cities and towns would receive a share of state sales tax revenue and would get new revenue from the taxation of Internet sales.

DeGrood told the Regional Council the proposal means "small communities with high growth rates will be unable to effectively tax new growth other than through development impact fees."

"I think this is an issue that could bankrupt or really severely hurt several of the members of this organization."